If you are in and expect to remain in the 15% tax bracket it is not bad.
If in a higher bracket you should give consideration to the three fund portfolio which for you would look like this:
Int Muni 30%
This setup has the advantage of capturing the foreign tax credit and sheltering bond interest as well as the lower expense ratio of Admiral class funds. However, you would have to rebalance once a year. If all that is too complex for you, I see no reason not to pursue the strategy you have outlined.
Or how about your own thread from March? livesoft made the same points back then. viewtopic.php?f=1&t=92637&p=1334252#p1334252livesoft wrote:With half one's portfolio in taxable and half in tax-advantaged, it seems like you should be in the 0% tax bracket and not the 15% tax bracket unless you also have a pension coming in. Have you read the ZERO taxes in retirement thread?
Bustoff wrote:Is this a bad plan ?
Bustoff wrote:If I converted my IRA to a Roth wouldn't I pay 25% tax on the converted amount ? I thought anything over $70,000 got taxed at 25%.
livesoft wrote:Your question suggests that you have NOT
(a) Read the zero taxes link provided (in several threads you started) all the way to the end
(b) Did not try to use the calculator at http://www.i-orp.com, and
(c) Have not used tax software such as TurboTax to model your taxes and your Roth conversions.
Bustoff wrote:(a) I did read the zero tax thread, but it wasn't an easy read for me. I'll go back and study it further.
livesoft wrote:Here are a few more points not explicitly stated so far in this thread, but they have been made elsewhere:
(1) Return of capital is tax free. That's right, you pay no tax on principal returned to you from a taxable account.
(2) Long-term capital gains tax rates are lower than your marginal income tax rate.
livesoft wrote:Jan, you can hit me up side the head with a two-by-four anytime you want.
Bustoff wrote:BTW, my understanding is that each year of a Roth conversion starts a new five year holding period for that years conversion amount.
Jan, you should have taken a vote first.retiredjg wrote:Ah, ha ha! No need.livesoft wrote:Jan, you can hit me up side the head with a two-by-four anytime you want.
Bob's not my name wrote:Jan, you should have taken a vote first.
retiredjg wrote:Bustoff wrote:BTW, my understanding is that each year of a Roth conversion starts a new five year holding period for that years conversion amount.
Can't help with the ORP calculator, but I might be able to help with this one.
It is true that each Roth conversion starts a new five year holding period. But that doesn't necessarily mean it will affect you.
Once you have had anything in Roth IRA for a 5 year holding period AND you hit 59.5 or are disabled, all the money in all your Roth IRAs becomes qualified (can be withdrawn with no tax and no penalty) and you can forget counting any other 5 year holding periods.
Bustoff wrote:Distributions of conversion and certain rollover contributions within 5-year period.
If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions , later, to determine the recapture amount, if any.
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